David Cameron insisted today that the Government will stick with its economic strategy despite warnings that the economy is set to shrink by 0.4% this year.

The Prime Minister admitted that Britain faces a "very slow healing process" after the International Monetary Fund downgraded its previous forecast of 0.2% growth.

But he dismissed calls to change course to boost growth and adopt a "Plan B" and vowed to make sure "Plan A" was "firing on all cylinders".

Mr Cameron said: "The IMF also say we shouldn't abandon our plans of making reductions in government spending and also, regrettably in some cases, putting up some taxes to get on top of our debt and our deficit.

"So it's not Plan B that we need. What we are doing is making sure that every part of Plan A is firing on all cylinders."

He added: "These are difficult times but the worst thing to do when you have got a problem of too much spending, too much borrowing and too much debts is to do what Labour say and have more borrowing and more debt. You can't borrow your way out of a debt crisis.

Mr Cameron insisted the Government's latest wave of welfare cuts - an extra £10 billion on top of the planned £18 billion - would go ahead despite Liberal Democrat vows to block cuts to the poorest without further measures on the rich.

"Let me be absolutely clear, we will be taking further steps to make sure the richest in our country make a fair contribution and up to now they have paid 10 times more than the poorest 10% in terms of reducing our deficit," he said.

Mr Cameron said the Conservatives would work with the Lib Dems on welfare cuts to do what was "fair and right".

He added: "The simple truth, as George Osborne put it, is this - if you need to bear down on public spending and you need to get your deficit under control you don't want to cut schools and hospitals and the things we really value then you do need to look at the massive items of government spending like the welfare budget."

Asked why he had ruled out Lib Dem calls for a mansion tax he said: "I think the mansion tax is a bad idea because people who work hard and put money in their homes, who save, they shouldn't have the Government coming after them every year in respect of that.

In an interview on ITV1's Daybreak, Mr Cameron was challenged over whether the planned welfare cuts meant the Conservatives were going back to their image as the "nasty party", which he has tried to shake off.

He replied: "I don't accept that for a moment.

"When we came to power there were people all over the country getting up and going to work and their taxes were going towards families in London who were getting each £50,000-£60,000 of housing benefit every year.

"That isn't fair, so I want a fair welfare system that works for everybody.

"It is a national effort to pay down our deficit and deal with the debts we have inherited. We have to ask the richest in our country to bear the greatest burden, and they are doing that because of our tax changes and the approach we take.

"But we have to be frank with people. When you are trying to reduce public spending - and everyone knows we have to do that - if you don't look at the welfare budget and very large things like public sector pay, you end up having to make cuts to hospitals and schools and I don't want to do that."

Mr Cameron added: "Of course welfare is very important and when people lose their jobs they need to know that unemployment benefit is there for them. If you are disabled you need to know that the benefit system is there for you.

"But the fact is that we do spend as a country £80 billion a year on working-age welfare and for too many people it's not been worthwhile going out to work.

"We need to change that and that's why our new approach with Universal Credit means that you will always be better off in work.

"Unlike today where sometimes if you work a few hours, you get all that money taken away from you and sometimes more, it will be always worth your while to work those extra hours.

"So we want a welfare system that supports the vulnerable and the needy, but also encourages work, rather than discouraging it."

Responding to the IMF forecast of negative growth, shadow chancellor Ed Balls said: "Coming just hours after George Osborne complacently insisted he would cling on to his failing plan, these downgraded IMF forecasts are another damaging blow to the Government's economic credibility.

"Twelve months ago, the IMF forecast growth of 1.6% in 2012 and said a Plan B would be needed if growth were to be lower than expected. A year on, with Britain in a double-dip recession and growth forecast to be minus 0.4%, there can be no question that a change of course is urgently needed.

"The IMF has rightly warned that the Government's policies risk causing permanent damage to our economy and growth is needed to get the deficit down.

"And, like Labour, they've said a Plan B should include temporary tax cuts and additional infrastructure investment. It's time David Cameron and George Osborne finally listened and took action to kick-start our economy before even more damage is done."

Mr Cameron told the BBC Radio 4 Today programme the Conservatives were the only party answering the questions most important to the British people - not Labour, following Ed Miliband's well-received "One Nation" speech in Manchester last week.

He said: "The Labour Party cannot be a one nation party because, if you read or listen to Ed Miliband's speech, he was, of course, signalling he was turning to the right but actually in everything he said he was turning to the left - a tax on wealth creation, a tax on business, a tax on success.

"Quite a lot of it you can't preach one nation and practise class war. I think everybody sees that.

"The common ground of British politics right now is answering the question on everybody's lips - how do we take action to get Britain out of the difficulties we are in today?

"At this party conference you are getting a very clear answer. We unlock the aspirations of millions of people in this country, to get that first job, get that first apprenticeship, to own that first flat, to do their best for themselves and their family.

"The Conservative Party is doing what I would say all of the country would want to see, which is to unlock the talent of everyone to make sure we win in this global race. That's not left- wing or right-wing, it's sensible common ground, common sense, practical Conservative thinking."

Mr Cameron acknowledged that his party had not won the last election - despite highlighting a best-since-1931 performance in gaining 100 seats - and paid tribute to the Liberal Democrats for assisting in the creation of the Government.

He said: "They enabled a Government that can act in the national interest. This global race point is important because unless you deal with bloated welfare systems, ineffective education systems, tax rates that discourage business and enterprise, debt that holds your country back - unless you deal with these things, you can't succeed.

"The Liberal Democrats are helping us take action on all of those fronts."

The Prime Minister rejected suggestions that lack of competence - over the West Coast Main Line, Andrew Mitchell and Budget U-turns- would hit his ability to win in 2015.

He said: "On the broader question of competence, all governments face challenges and I would make two points - first of all we have just helped to deliver the most successful Olympic and Paralympic Games in the last century.

"Secondly, for years members of the public, me included, have been tearing their hair out, saying 'Why do we have to put up with these radical preachers, sponging money off the taxpayer and threatening our country - why can't we deport them?' This Home Secretary has managed to deport Abu Hamza and get him on an aeroplane to face justice."

On Mr Mitchell specifically, Mr Cameron denied he had accepted his Chief Whip's account of events over that of the police officer.

But he added: "I accepted Andrew Mitchell has apologised and the police don't want to take it any further and they accepted his apology.

"I'm not going to go into the private conversations I had but suffice to say what happened was completely unacceptable and must never happen again."

Mr Cameron told BBC Radio 5 Live: "What the IMF are saying is, first of all they are coming into line with other forecasts, which are disappointing, that there is going to be a very poor picture for growth in Europe.

"They are not advising us to change course, they are saying unless things get dramatically worse, we should stick to our plans, which is about reducing public spending and dealing with debt and deficit.

"What we need to add to our plans - and what we are adding to our plans - is everything we can do to help growth in our economy.

"That is why we are cutting corporation tax, we are reforming the planning system, we are making it easier for businesses to start up.

"Whilst there is some grim economic news, there is also the fact that in the last two years we have created one million net new jobs in the private sector and last year was the best year for new business creation virtually in our history, so there are signs that our economy is rebalancing.

"We are making things again, we are selling things again, we are exporting things again, but we need to do more and we need to do it faster."

Mr Cameron added: "Of course, there are difficult times for Britain. This is a huge generational challenge we face. We are in a global race where some countries aren't going to make it and others will.

"I'm determined that Britain is going to be one of the success stories, and if we deal with our welfare bills, if we reform our schools, if we have pro-growth policies, if we get behind the enterprise and aspiration of people to help them start that first business, get that first home, take those steps to provide for themselves and their families, to get on and get up, then we will be a success story."

Defending the planned cuts to welfare, Mr Cameron told 5 Live: "We send some strange signals in the benefit system. If you are a young person, you leave college, you get a job, you are often having to live at home into your 30s because you can't afford a flat.

"Yet if you are out of work, you are able to claim housing benefit and get a flat and you are able to live separately from your parents while the working person isn't able to. Is that fair?"

Mr Cameron later told Sky News's Boulton & Co: "What's happening in Europe is it's changing rapidly and this gives us the opportunity to seek a fresh settlement and then ask for fresh consent to that settlement.

"I anticipate at the next election setting out what that settlement would look like then seeking the consent of people either in a referendum or at a general election.

"I think a referendum is the cleanest, simplest, neatest way of doing it but I think we can leave that question open because there is so much uncertainty at the moment in Europe.

"People need to know I'm not satisfied with the status quo, the Conservative party wants change on Europe.

"I think the trouble with in/out is that both are unacceptable. I don't want to leave it as it is now and lock ourselves out of the single market, but I'm not content with the status quo, it needs to change."

Mr Cameron later told BBC News that Britain was "on the right course" economically but acknowledged it was "a long and difficult road" to recovery.

"We are on the right course because we have cut the deficit from 11% to 8% - that's a cut of a quarter," he said. "That means we are on the right course. We've seen a million new jobs in the private sector - that means we're on the right course. The rebalancing I've talked about is happening. We've seen the biggest number of start-up firms last year of any year in our history, we're now a net exporter of cars, we're starting to make things and export things again.

"But it is a long and difficult road and I don't hide that from people. This conference this week has been about the difficult choices - that if we want to win in the global race, if we want to be one of those countries that succeed, we've got to reform welfare, we've got to get better standards in our schools, we've got to get deficit and debt down and we've got to be competitive.

"These are tough, difficult times and they require strong leadership."

Mr Cameron denied that, by cutting benefits for the poor, announcing protections for householders who tackle burglars and signalling a possible referendum on Europe, he was "losing his nerve politically", abandoning the philosophy of compassionate conservatism which he espoused early in his leadership and throwing red meat to the restive right wing of his party.

"I don't accept that at all," said the PM. "We are taking what we are doing in welfare - where we are spending up to £14,000 to get one individual back into work - we're taking the logic of that into our prisons and saying 'How can we help these people who can't read, who came out of the care system, who never had anyone who cared for them and loved them?' That hasn't changed at all.

"But I've always said that you have a boundary that if people cross you must come down on them like a ton of bricks. But before they cross that line, yes we do need more help, more care, more tenderness in our system. That hasn't changed one bit."

Mr Cameron added: "The real centre ground of British politics right now is who has got the answers to making sure Britain competes and succeeds in the global race? That's the question that wasn't answered by Labour and is being answered by us."